Long-run Impacts of Intergovernmental Transfers

This paper provides regression discontinuity evidence on the long-run impacts of a temporary increase in federal transfers to local governments in Brazil. Revenues and expenditures of the communities benefiting from extra transfers increased by about 20 percent during the 4 year period from 1982 to the end of 1985. Previously established schooling and literacy gains of school-age cohorts as well as reduced poverty in the community overall as of 1991 are generally attenuated but persist in 2000. By 2010 the estimated education and income gains are still positive but typically cannot be distinguished from zero. Children and adolescents of the next generation—born after the extra funding had disappeared—show gains of about 0.06 to 0.10 standard deviation across the entire score distribution of two nationwide exams at the end of the 2000s. Available evidence on mechanisms points to a persistent reduction of the student-teacher ratio in local public primary schools throughout the 1990s and 2000s. We also find discontinuities in education levels and incomes of test takers' parents that are consistent with intergenerational human capital spillovers.